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Faith is taking the first step even when you don’t see the whole staircase.Martin Luther King, Jr.

The barriers for starting a company have come down. Today the total available markets for new applications are hundreds of millions if not billion of users, while new classes of investors are popping up all over (angels, superangels, archangels, and even seraphim and cherubim have been spotted.)

Entrepreneurship departments are now the cool thing to have in colleges and universities, and classes on how to start a company are being taught over a weekend, a month, six weeks, and via correspondence course.

If the opportunity is so large, and the barriers to starting up so low, why haven’t the number of scalable startups exploded exponentially? What’s holding us back?

It might be that it’s easier than ever to draw an idea on the back of the napkin, it’s still hard to quit your day job.

Napkin EntrepreneursOne of the amazing consequences of the low cost of creating web and mobile apps is that you can get a lot of them up and running simultaneously and affordably. I call these app development projects “science experiments.”

These web science experiments are the logical extension of the Customer Discovery step in the Customer Development process. They’re a great way to brainstorm outside the building, getting real customer feedback as you think through your ideas about value proposition/customer/demand creation/revenue model.

They’re the 21st century version of a product sketch on a back of napkin. But instead of just a piece of paper, you end up with a site that users can visit, use and even pay for.

Ten of thousands of people who could never afford to start a company can now start several over their lunch break. And with any glimmer of customer interest they can decide whether they want to:

run it as a part-time business

commit full-time to build a “buyable startup” (~$5-$25 Million exit)

commit full-time and try to build a scalable startup

But it’s important to note what these napkin projects/test are not. They are not a company, nor are they are a startup. Running them doesn’t make you a founder. And while they are entrepreneurial experiments, until you actually commit to them by choosing one idea, quitting your day job and committing yourself 24/7 it’s not clear that the word “founder or entrepreneur” even applies.

Lessons Learned

The web now allows you to turn your “back of the napkin” ideas into live experiments

Running lots of app experiments is a great idea

But these experiments are not a company and you’re not a “founder”. You’re just a “napkin entrepreneur.”

50 Responses

What you’ve written here is precisely the problem I have with a lot of what Guy Kawasaki (Apple/Garage) has to say about starting a company. When I listen to him speak I’m incredulous how he makes it seem that starting a company is easy and doesn’t cost anything. I don’t recall any successful companies that he’s invested in as a VC, and it isn’t clear to me that any of his personal ventures have been successes either, excluding his own self-promotion and publishing.

Well, I suppose on the one hand he’s correct: starting a business is quick, easy, cheap and virtually risk-free. However, building a COMPANY that is valuable and sustainable is a much different matter.

It would be interesting and entertaining to see you and Kawasaki publicly debate each other.

“But it’s important to note what these napkin projects/test are not. They are not a company, nor are they are a startup. Running them doesn’t make you a founder. And while they are entrepreneurial experiments, until you actually commit to them by choosing one idea, quitting your day job and committing yourself 24/7 it’s not clear that the word “founder or entrepreneur” even applies.”

What about cases like Jack Dorsey of Square, and now Twitter again. He’ s CEO of Square but going back to be Executive Chairman of Twitter, does that mean he is no longer an “entrepreneur”?

I agree that the definition of what constitutes an entrepreneur has become increasingly fungible but I don’t necessarily agree that a narrow definition (1 idea consuming all of your attention) is appropriate either. In other facets of life we don’t have to choose a single designation, a person can be a husband, father, coach, pastor whatever. What makes business special?

I just “founded” I’ll put that in quotes in the spirit of the article😉 a startup, socialdeal.net that would fall under the parameters of Steve’s post. I kind of bristle at the implication that the couple hundred man hours of dev and test time that my co-founder have put in don’t make us entrepreneurs yet. We’ve paid a high opportunity cost in our time and the few thousand dollars we’ve put into the business when the time and money could have been spent on/with friends or family.

My startup is a registered business, I’ll have to pay taxes on it, if people use the site I’ll be expected to fulfill my obligations to the customer. All of that is true despite the fact that I still have a “day job”. The day job is so we can boot strap this thing until it becomes the sole professional focus. At the very least, I’ll consider myself an entrepreneur from 6:00PM until 2:00AM every night🙂

Justin, interesting comments. While having a day job might in fact show a lack of willingness in some circumstances I don’t think it necessarily proves that; especially in a bootstrapping scenario like you mentioned. Nice post.

Labels are the constructs and shackles of a incumbent and dying system. If you build a company you’re an entrepreneur. It’s not important whether or not others agree with your definition or not. What matters is your mental commitment, sacrifice, and success.

I’ve seen investors and founders describe the necessity of commitment many times. They emphasize the importance of having no other options, burning the bridges so to speak. Investors want totally focused founders (desperate), entrepreneurs that are working on nothing else want their sacrifice to be more meaningful than those who start a company in their spare time.

All things being equal the founder who does nothing else but focus on building their startup will outperform the Jekyll and Hyde founder. But things aren’t equal. And often times these experiments serve as a perfect search platform for transitioning to a startup which shows signs of traction and breathes to life.

There was a ABC news story about small business financing in Singapore. They have a policy for startups and small business: One free ride for loans under X. stipulation, most of the money is carefully controlled to be spent on local resources – rent, labor, capex. They even loosen credit requirements, and streamline the approval process to under one week. Foreigners are allowed to take part in the program on a business Visa.

I’m not so sure that the distinction is as clear as you make it (being fully committed versus keeping your day job). It seems to me that it’s much more phase shift than a binary yes/no in determining if you’re a founder.

I agree that these aren’t “companies,” but I’m sure many of the people behind these (the people who are bootstrapping, working a job and also exploring a new space) are the type of people that would be willing to quit and turn their job into a more full exploration of the space once they are confident that the space really exists.

The definition of terms regarding lifestyle business and real business are blurring thanks the secular changes in the industry. What I think is confusing for most people is the distinction between lifestyle businesses and hobbies – if you’re hobby is running a forum for some obscure game and you put up Adsense, then you’re stretching it to call yourself an entrepreneur.

It’s just that the lower bar for creating these business tests are also changing the risk/reward ratio that people are willing to stomach to try them out. Why quit a job, spend 1 year building a product and then fail when you can do the same thing inside the confines and comfort of still working a day job?

Quitting a day job implies you need either investors or savings to pay your way to profit. For many, this is the number 1 barrier to entry.

Another issue is that after the tech barrier to entry falls, the cost of building a business does not go away – it shifts to customer creation and acquisition. If everyone can build a site, standing out of the napkin crowd is where the real difference is made. Again, ingenuity alone does not help, cold hard cash needed. Groupon and Zynga spent like a sailor form Day 1 but hardly ever innovated, instead they were shameless copycats…

Thanks for the thoughtful post. I followed a link from Hacker News because I write a lot of my ideas onto the back of a napkin and often consider the intricacies of getting them from tissue to reality.

I wanted to ask how it can be so easy to create an app, unless you have the coding skills yourself? I have a dozen ideas for useful and probably even one or two profitable apps, but almost all the ideas require some infrastructure (which has a significant associated cost) and of course would require ongoing development when (not if) users find bugs in the code. Is there a service provider out there who could cost-effectively provide me with a platform for my ideas to be created, launched, nurtured and allowed to slowly grow without me needing to immediately leave my dayjob to focus my attention on more rapid growth?

Rayhan wrote – “Is there a service provider out there who could cost-effectively provide me with a platform for my ideas to be created, launched, nurtured …”
You can always try products like Balsamic, etc. or mine http://www.10screens.com for the creation piece. No coding. Just create.

I guess I’m a former Entrepreneur turned Napkin Entrepreneur. I worked full time at my own start up for awhile, but after not making any money for some time, i started a consulting business on the side and while that was going on i started another start up, and when the consulting stopped paying the bills, i got a full time job. Now I have two start ups and a full time job. I know everyone keeps telling me to choose, but I can’t right now.

It’s interesting to see that you’ve appointed yourself the arbiter of what constitutes “entrepreneurship” or a “company” and who, exactly, can call themselves a “founder.” I don’t remember voting for you.

Perhaps what you meant with regards to these startups was “I wouldn’t call you a founder. I wouldn’t call this a company. I wouldn’t consider you an entrepreneur.” Such a framing makes it much clearer that we’re discussing your definitions of the terms.

David,
I assume from your comment that you are unfamiliar with my work in this area. I have a different point of view. I’ve found exactly the opposite – not all founders, entrepreneurs and startups are the same. I’ve written about it as part of this post, and the slides diagramming the differences are part of most of the presentations here.

It turns out that the difference are much more than semantics. Each of these four very different types of entrepreneurship and companies require very different investment strategies, management strategies, educational tools and government policies/economic incentives (tax breaks, paperwork/regulation reduction).
Yet as different as they are, understanding them together is what makes the difference in being able to assemble optimal strategies in each of them.

I realize the thinking may be new, but it’s no longer just my opinion. This taxonomy is becoming pretty widely understood in the schools that I teach and in the region where I invest.

Thanks for your reply, and your willingness to engage on the topic. Let’s first agree that not all founders, entrepreneurs, and startups are the same; I doubt there is anyone who would disagree with such a statement.

I’m not yet convinced of either the internal or external validity of your model of who’s an entrepreneur and who isn’t, however. The taxonomy that you pointed to is “small business startups, scalable startups, corporations dealing with disruptive innovation and social entrepreneurs.” I agree that these are different from each other and potentially useful as an organizing framework (although I don’t think they are mutually exclusive, nor do they span the set of possible entrepreneurship opportunities.)

Mostly, however, I don’t see “napkin entrepreneurs” discussed in that taxonomy at all; such low-risk “look before you leap” experimentation would seem to be a possibility for at least three areas (except, possibly, corporations dealing with disruption).

My original comment was my reaction to your pronouncement that the creators of these napkin businesses are not ‘entrepreneurs’ and their creators are not ‘founders’.

Would you say that only the creators of “scalable startups” are founders? Only people who devote full-time effort to their companies from day 1? Only people who risk their own money? Only people who are primarily after monetary gain? Only creators of firms with employees? Only creators of ventures which have a high probability of failure? Does a previous IPO followed by the creation of a “napkin business” strip a creative person of the entrepreneur label?

I submit that a person can create a revenue-generating venture, never quit his/her day job, never risk a dime, never employ another person, and have a near-100% probability of successfully making hundreds of thousands (or millions) of dollars and still qualify to be an ‘entrepreneur.’

Upon reflection, it would be a little odd to speak of such an entrepreneur as the ‘founder’ not because of any lack of qualification — but because they were the whole firm!

P.S. Please delete the URL that you added to my previous comment. I most certainly did NOT include it.

The post celebrated the notion of low-cost experimentation – and yes I believe it can be done across all types of startups. Our disagreement seems to center around the word “founder.” To answer your questions of who do I call a founder, I think the post was pretty explicit – “until you actually commit to them by choosing one idea, quitting your day job and committing yourself 24/7.”

And yes, while the definition of “founder” is just semantics, its definition (at least where I live) has specific meaning and causes specific actions/inactions for professional investors and sets a standard of behavior for the entrepreneurs themselves.

While you describe a case where someone can create a hundred million dollar business without ever quitting their day job, I’ll offer that while that may be a great candidate for a HBS case, it’s a rare corner case.

What I try to offer to the readers of the blog are simple heuristics that most often describe the choices they encounter on a daily basis.

As much as I’ve tried to bite my tongue on this my New Jersey upbringing prevents me. I looked at your background on LinkedIn: http://www.linkedin.com/in/dcroson and confirmed my suspicion that you are merely an academic pretending to be an expert in entrepreneurship. Being a “founding advisor” means nothing.

You remind me of a Harvard PhD I worked for in the late 90s. He taught entrepreneurship at Bentley College, and published a textbook on the subject that, at the time, was billed as the encyclopedia of entrepreneurship. He lost his chair at Bentley because his work was deemed ‘un-scholarly.’

He left in a huff and started what he dubbed a “high growth start-up company” and was going to leave Lotus in the dust. Well, he broke all of the rules he wrote about entrepreneurship, listened to nobody but his wife (who listened to nobody), burned through $3M very quickly (while furnishing the offices with $7K cherry desks) and never took any responsibility for it.

Steve Blank has actually rolled up his sleeves and done something as opposed to you that is essentially collecting welfare in the form of a tenured position. He then codified his learning and is now teaching what he learned as opposed to regurgitating a bunch of meta-data as scholarly types are wont to do.

Go out and start a company or two and then criticize someone that actually has. You and your blather represent all that is wrong with a traditional business ‘education.’

Great article. These are hobbies not companies, even though they may even generate some revenues. I know of no investor willing to invest in someone who is not pursuing an opportunity full-time, especially not a first-time entrepreneur. Until there is full commitment, in almost all instances the valuation of these “napkin companies” is zero.

I have a successful “day job” as an attorney, a solo practitioner. I also have a startup that’s been a dream of mine for a few years now and I’m using my savings and nearly every spare moment of my time to realize that dream.

But I guess, since I’m not throwing away my law firm income and committing “24/7” I’m not a real entrepreneur.

Gee thanks for the helpful advice Steve. What wonderful nuggets of wisdom and encouragement you provide.

Great article!
This is just like “the chicken and the pig” story with regards to involvement vs. commitment.

One of the main challenges in company construction is to convince others (investors, employees, …) to take part in the venture. People who are not willing to commit themselves, will find it very hard to convince others.

Many of my clients face this dilemma. There are various ways to solve for it, but much seems to depend on serendipity: Spouse with healthy income, availability of consulting engagements to save up money, access to “FFF round” funding (friends, family and fools), lack of student loan debt, and so forth. Stage in life can also play a major factor; a large percentage of the early starge startups I represent are founded by twenty-somethings with no dependents living a very lean lifestyle. It’s significantly harder to live on no income for those 20 years older with children in school or college, who need family health insurance coverage, etc. (although older entrepreneurs are more likely to have substantial savings or proceeds from previous exits). And of course the Bay Area is one of the most expensive places to live in the country.

I’d be interested to hear what Steve and others think of the “social ideation” concept behind AHHHA, a startup which launched publicly yesterday. It seems to me that this kind of service could build a bridge between the “napkin entrepreneurs” who source creative, original ideas but lack the ability or desire to make the sacrifices necessary to found their own startup, on the one hand, and those with the resources, capital, and connections to take that napkin and run with it. (Full disclosure: AHHHA is a client.)

When relying on user metrics as feedback to see if a concept has stickiness are we not diluting the users experience? Treating users as an infinite resource is a quandary upon it’s self. The risk is turning the search experience in to a swamp, with the user sinking in mediocre results. The chasm will deepen between good and great and will create increased rewards for the one percenters. The up side is with distance we will find a scale of opportunity in the niche markets formally reserved only for the Amazons of the world.

I was with you up to the three classes of project that you laid out (part-time, full-time with exit, full-time with scaling), but then it got all whiny.

As I read it, the thesis of this post is: “Its easier now than ever for just anyone to launch a product, and there are a few ways to do it, and that’s great, but I don’t want you to call yourself a ‘founder’ or an ‘entrepreneur’ until you meet this set of conditions.”

What a pointless statement. Who cares what people are calling themselves? Check your ego, fella.

Minding that there people that the post does apply to, namely me, I’m glad Steve is pointing out that no matter how detailed of a sketch or (really) a full fledged 40 page business plan I have, I am nothing more than a guy with a bunch of papers walking around thinking I’m something that I’m not.

In other words, this is a good swift kick in the a$$ in terms of reminding me that despite the hard work put in thus far, I am not nearly finished.

I would love more posts that expound on how to turn the napkin sketches into those early “no-cost” experiments. How to then operate those experiments such that a definable moment can come when you can say, “yea, I own/founded that company.”

Sorry Steve, you are wide right on this one. I love your posts and agree with most of what you say but you presented the typical VC view ( I know you are retired) that unless you are a multi million dollar firm you are not a real business. I don’t think Congress, President Obama (who target this group for more taxes) or all those “Lifestyle” business owner makings 6 figures would agree with your assessment.

I’m amazed at how many people are (willfully?) missing the point of this post.

Just a short decade ago was incredibly difficult to build even the simplest of web applications. Today, you can do it “over your lunch break.” Building a product has become much, much easier (and cheaper.)

But these are not businesses. To turn them into businesses requires more than just working code — it requires distribution, pricing, revenue models, demand generation, and all the rest that turn something into a business. These things remain difficult. And if they weren’t difficult then you wouldn’t worry about losing your day job to make them real.

The counterargument to your post is that a lot of these things are a LOT easier and/or solved problems. For example, if you write an iphone app that gets mass distribution and play the charting game to any level of success, you can make lots of money since most of those problems are well understood or solved.

These distribution channels just weren’t available to developers a few years ago. There definitely is a point that these new models preclude the need for VC money (and hence VCs) but many can and still raise capital if they want to convert a lucrative side business (or lifestyle business) into something larger.

Agreed. And at the risk of over-exposure, I referred to this recent blog post of mine in another recent blog post of Steve’s where I argue that the burden of creating a COMPANY has shifted from Engineering and Development to Marketing and Sales: http://bit.ly/h19GsT

Great blog, and I agree with you on two points. First, it’s an amazing time for entrepreneurship. A few weeks ago I wrote a blog detailing the how cheap computing power, open source software, low cost telecommunications and digital distribution channels have reduced – and will continue to reduce – the capital to start a company. For example, the “friends and family” round for Ford and P&G exceeded $1.5 million (today $). A far cry from the $18k Y Combinator model or the initial $100k Google received from Andy Bechtolscheim.

Additionally, the “science experiment” aspect is perhaps the most amazing phenomenon of our time. In the past, products were delivered through disconnected channels and advertisements were one-way. As a result, the feedback loop spanned many months and often did not provide great insights. Today, a company can receive instant feedback on a product, thus allowing it to quickly adjust its offering or messaging.

I would only add that the word “entrepreneur” is often mis- and over-used. If a person quits their job to bring an idea to light, than by all means they are a “founder.” But founder does not equate to entrepreneur. I find Peter Drucker’s definition in Innovation and Entrepreneurship the best:

“The husband and wife who open another delicatessen or another Mexican restaurant in the American suburb surely take a risk. But are they entrepreneurs? All they do is what has been done many times before. They gamble on the increasing popularity of eating out in the area, but create neither a new satisfaction nor new customer demand. Seen under this perspective they are surely not entrepreneurs even though theirs is a new venture.

McDonald’s, however, was entrepreneurship. It did not invent anything, to be sure. Its final product was what any decent American restaurant had produced years ago. But by applying management concepts and management techniques (asking, What is the ‘value’ to the customer?), standardizing ‘products’, designing processes and tools, and by basing training on the analysis of work to be done and then setting the standards it required, McDonald’s both drastically upgraded the yield from resources, created a new market and a new customer. This is entrepreneurship.”

So the person who quits their job to create another coupon service or to digitize a previously invented game (think Scrabulous) is a founder and a go-getter, but not an entrepreneur. The term entrepreneur is reserved for the person or company reinventing the way coupons are bought and marketed or the person creating all new games, such as what is happening in the location-based space.

I, too, would like to know what resources are available to build a web app “during your lunch break”. Balsamiq seems like a simple way to design the layout, but does not necessarily help with building the function of a web app.

I have a great idea for a web application, but have not been able to find any service which can help me build it without prior programming knowledge.

Sounds awfully haughty! The state would say a “company” is formed when a certificate of incorporation is approved and the founder is the person who filed it, told somebody to file it for them, or is considered a co-founder by one of the former two. Whether the company achieves greatness or profits or whatever is another story and as we know most will be failures. Of course, the more super-talented people you have working on it the more hours the better chance it has, but to say a successful company has never come out of someone’s part time efforts is inaccurate (Twitter comes to mind), and if someone starts a company part-time and then hires a team to execute the plan to greatness they deserve founder title in my book.

Funny. Ok, Shawn confess. Out of the deal flow you did in the last decade at Menlo Ventures how many part-time deals did you fund? Your partners?
If an entrepreneur walked into your offices and told you about the three science experiments they were working on would you have written a check – without first telling them to pick one?

A few times now we’ve funded so they could quit their day jobs (or pursue entrepreneurship vs. the “salary job” for Dan & Simon a few GSB grads that started SpeedDate). One of the wonderful side effects of what you’ve been teaching is the ability to assess product/market fit on very little resources, time and money. This allows a part-timer to significantly reduce the risk (and increase valuation of a round) before having to quit. We’ll have one data point to see how it works with the deal I’m working on now, fingers crossed! 🙂

A problem I have with the current discussions is the implied statement that all startups are web starups. Pointing out how inexpensive writing testing and distributing software has become is not the definitive word on entrepreneurship, or indeed all startup value to society.

VCs are interested in a big market and big returns. The business has to be scalable for it to be of interest to them. The London event held by the UK Department for Trade and Industry this week (see http://chw.ag/EWw – a recording of the webcast is available for one month) consistently brought home the message that ultimately it is the start-up management team that sways the decision to invest. Very different skills are required to innovate, launch and then scale a business successfully.

I’m not sure I agree that the key turning point is giving up your day-job and committing all your time. However you certainly need to commit to making sure you know the market, getting the business plan right, getting the right team together, going after seed capital effectively and securing it. If you don’t have the time or skills to do it yourself, what if you could engage experienced entrepreneurs to do it for you? This is what we do at Second Mile. If this is what you are looking for, hope you’ll check us out: http://www.secondmile.co.uk